I was having a conversation with my friend today about the whole banking crisis. I had been familiar with it but he really helped fill in the blanks. Basically, as I understand it, the banks gave out mortgage loans to people who really had no business taking these loans out (i.e they couldn't afford them in their wildest dreams). For a while the demand that was drummed up was enough to make the value of these loans high in an asset sense. I'm a little unclear about this but somehow the banks were able to use these loans as leverage in a variety of business deals. The bottom line is that many financial institutions in the economy made their decisions based on the incorrect assumption that these loans, these assets that they held, were worth a certain value. When people began defaulting on these loans the value of these assets plummeted and as a response financial institutions across the country found themselves a lot poorer than they thought they were. Because of this decrease in their wealth they greatly reduced the number of loans they would dole out. This reduction in lending caused a ripple effect through our economy; when banks stopped lending money businesses stopped functioning properly, etc. etc. everyone knows this. The way I see it, though, is that it would be very bad if these banks fail. When I first got wind of the whole crisis I thought, "fuck 'em, they got us into this mess", but if the banks really do collapse ALL lending in the economy will cease to be and the whole ripple effect that happened before will happen again only in a much more severe way. In order for the financial institutions to start lending again it seems like these bad loans need to be made to go away. The only way I can see them going away is if a) the government pays for them, or b) consumption increases enough to increase the demand for houses again to make these assets worth more... Am I missing something here? I just can't see a way for this to pan out without major government intervention...
Moral Hazard The sad thing is they knew this was going to happen, and they know we would bail them out. That is the hazard of operating in a fraudulent system of federally insured fractional reserves. We reward stupidity. There can be fractional reserve banks, but they shouldn't be supported by a central lender of last resort. They need to assume their own risk. The banks need to fail, the people need to wake up and see this system does not work. The income gap is a result of these Fed driven business cycles. We need to go back to private money and market interest rates, not a magical rate that can be reduced to 0%. Do you think there is no consequence printing off trillions of additional dollars for corporate welfare? Do you know what would happen if the world dropped the US dollar as its reserve currency? Let the market and fixed prices crash, start at reality. Bring the elite to their knees, give the rest of us a chance to get in. Capitalism.
Government intervention to 'save' the banks.... You're proposing another bailout, essentially. I'll admit, I'm not the most informed, but what I lack in facts i'll make up for in opinion. First of all, fuck the banks. They do the same thing the fed does... loan out a single dollar multiple times. That is stupid. Especially since they're making interest on that dollar from each loan recipient. So, they loan out too much money.. when loans go bad the shit hits the fan.... and they're such an important criminal in our system they need more money to continue raping us. Again, fuck the banks. Government intervention to save these institutions is... a whole lot of fail.
I get what you mean. This is a bullshit system, and it'd be better if we didn't have it... But I just don't think we as a people can deal with the market crashing. If the elite are brought to their knees, what will happen to the poor? I'm not so enraged at the social elite that I'd be willing to watch millions of people suffer horribly.
I am confused. I can only see major long-term benefits from the elite's demise. How would the lower class suffer?
Millions of people are going to suffer regardless, we should fix the system and aid them the best we can. We should not, and cannot, aid both the system AND the people suffering. If we are printing up money it should go back to taxpayers and consumers, not back into the hands of the idiots in power. Anyways:
Like... A lot of stuff rides on this system... Aren't you a bit concerned that in this crossover to the fresh new system that people might end up suffering more than they otherwise would under the current system? I mean, the current system makes upward mobility harder the lower down in socioeconomic level you go, and that's awful. But I worry that in this shift many millions would not just go through a shitty time, but rather, they would die. Our recession rippled through the entire country. If the dollar fails completely, is it really that far fetched to think the Euro will fail, that the Yen will fail? The kind of economic conditions that would go with that kind of crash would rip society apart. Are you so sure that we would be able to start back up quickly under this new, better system? I'm not.
I don't know how a revolution would change our system. Hard to speculate. I don't see everything crashing down... a lot of companies will still have assets. Independent agriculture will rise... I dunno. It would be rough, but death? Maybe I have too much faith in humanities ability to adapt. Look at the living conditions some are living with in less-fortunate countries.
if the people who have lost there homes, witch I ,am one of them. and now have bad credit of course , are not allowed to go back and start re buying the foreclosed homes , because there are so many of them out there , our economy will be in bad shape for a long time years , they would love to say fuck the people who lost there homes, we will rebuild with out them it,s there fault there in that shape in the first place ,it is to a degree but the banks and mortgage company scammed allot of us ,and they think with all the stimulus package's they are going to fix the shit , if the banks don,t set up a low interest loan system fixed rate and start re loaning money to the people who have bad credit ,and start loaning most money to the commercial construction job market , we are all going to be in a shit hole for a while every time they send out stimulus money the value of the u,s. dollar goes down